(Please note that the views expressed in this article are written as my own views to provide guidance for defense counsel, and do not in any way, reflect those views of Western World Insurance Company, Validus Specialty, or AIG.)
Steven N. Joseph
“I hate brackets.” If you polled lawyers who mediate on a regular basis, a large number of them would give that response. And you can see why many would have strong feelings about brackets when they have had a bad experience with them. Here are three different scenarios, and these strong feelings become clear.
Scenario 1
Counsel represents an attorney in a legal malpractice action. The opening offer and demand are $50,000 and $2 million. At the end of the mediation, the parties are at $250,000 and $1 million respectively. The mediator declares an impasse, and the parties remain at their respective positions. After further discovery is completed which proves beneficial to the defense of the case, the parties return to mediation. The case gets resolved at $400,000.
Scenario 2
Same case. The parties move to the $250,000 and $1 million offers and demand. The mediator then suggests a bracket between $400,000 and $800,000. Before the bracket, counsel had provided an evaluation of the settlement value of the case to be somewhere between $300,000 and $400,000. Plaintiff’s counsel accepts the bracket proposed by the mediator, and with added pressure employed by the mediator, defense counsel, the client, and insurance company representative reluctantly accepts the bracket. Negotiations continues, and the case settles at $650,000.
Scenario 3
Again, same case. The parties have the same initial offers at $50,000 and $2 million. The $50,000 offer is in response to the $2 million demand. Plaintiff’s counsel then proposes a bracket of $1.95 million and $1.25 million. The parties on the defense side rejects that bracket, and proposes a competing bracket of $100,000 and $500,000. Since the brackets are far apart, both sides want to declare an impasse. The mediator then tries to save the mediation (and keep his success ratio intact) and proposes a bracket of $500,000 and $1.2 million. Defense counsel had provided the same evaluation for settlement as in Scenario 2. They reluctantly agree to negotiate in the bracket proposed by the mediator, and the case ultimately settles for $850,000.
In both Scenarios 2 and 3, the introduction of the brackets changed the dynamic of the negotiation. The cat is out of the bag. In both Scenario 2 and 3, even if the defense side had rejected the proposed bracket, plaintiff and plaintiff’s counsel will see this as a fall back position, even if they do not agree with the proposal. The defense side has lost credibility with their proposal, even if the numbers they had proposed were credible numbers from a liability vantage point.
The other problem for the defense with the above 2nd and 3rd scenarios is that the numbers represent a huge compromise in their negotiation position. If the defense attorney accepts a bracket on behalf of the client, a clear signal is being sent that the client has a willingness to go to the midpoint of the bracket. In scenario 2, though not verbalized, the offer moves from $250,000 to $600,000. In scenario 3, the unspoken new offer moves off of $300,000 to $850,000.
Any competent negotiator would not feel comfortable with such a drastic move off of their settlement position. Not only was this a huge move off of their negotiation position, but both numbers were well above the recommended settlement number. In scenario 3, it was more than double the amount that defense counsel had recommended for settlement. The case settles, but not without some hard feelings of having overpaid to settle the case.
This article discusses how to make brackets work at mediation. From a plaintiff’s counsel’s perspective, scenario 3 is exactly how to make brackets work for them. The first bracket proposed is false bracket or a clever decoy. It is not being put out with any serious intent that the bracket will be accepted. In fact, plaintiff’s counsel is 100% confident that the bracket will be rejected. But, the trap has been set. In scenario 3, the defense side put out a bracket that they viewed as the appropriate bracket. It represented a settlement range that they had in mind from the start. Defense counsel may not have been confident that the bracket would be accepted, but it was made with an honest intent on how they had seen the case.
Once the trap had been set, a third bracket is then proposed that is between the two original brackets. The plaintiff’s attorney shows a deep reluctance to go into this bracket. It is represented that this is a grand compromise on their part. The client is furious, and has very hard feelings over the process. They tell the mediator that because of this great sacrifice, they now want to see results. Because they are accepting this compromised third bracket, they make it clear that they want to end up at the top of the bracket.
However, this was their plan all along. They are exactly where they had intended to be. And, what is the mediator supposed to do? They put a significant amount of pressure on the mediator, and the mediator is compelled to show some results.
The case settles at $850,000. Crocodile tears are flowing from the plaintiff. No handshakes are exchanged once the deal was done. But, in private, smiles and hugs. The plan was executed to perfection.
From the defense side, this can be avoided. First, no one put a gun to their head to accept the bracketing process as the means for negotiation. Brackets can be rejected outright. In scenario 3, the defense team can simply point out that the plaintiff has an unrealistic view of the case, and “while we are willing to continue to negotiate based on a discussion of the issues, we are simply not willing to negotiate with brackets as the basis for the negotiation.”
The problem that arises with bracketing is that too often, once the bracketing begins, the facts and the law leave the negotiation process. It becomes all about the bracket. In scenario 3, one is too cold, and the other too hot. So like in the story of Goldilocks and the Three Bears, the mediator becomes Goldilocks and selects the bracket that appears to be just right.
The key here is not to walk away from brackets, but rather, in a counterintuitive way, embrace them.
The Reasonable Home Run
While you spend time with the mediator in the private caucus room, while a single number may be put out as offers, all the discussions revolve around brackets. The obvious first bracket is exactly what can happen at trial. Plaintiff’s counsel suggests that the jury will come back with a very large number. Defense counsel will suggest that they will get a defense verdict.
However, if the defense side spends the entire time in the private caucus session talking about a zero award, they lose credibility, and from a risk management perspective, they cede power to the mediator to act as the risk manager. To avoid this scenario, the defense side has to direct the conversation to what would termed as a “reasonable home run”. I call it “reasonable” because it presumes that the plaintiff’s counsel will ask for a very high number and there is also a chance for a defense verdict. The reasonable home run presumes that plaintiff’s counsel will do an excellent job on behalf of his or her client. It also presumes that defense counsel too will do a superb job before a jury. We want to get away from a negotiation that literally suggests that the plaintiff’s attorney is wonderful, and defense counsel just passed the bar and can’t find the courtroom. Unless defense counsel truly just passed the bar, this is a very easy concession to come by at mediation.
Now, because we can agree that defense counsel actually knows how to try a good case, we can move the negotiation away from the astronomical numbers that plaintiff’s counsel may suggest. The jury award number gets a bit lower. Then, if defense counsel factors in the time and cost that plaintiff will incur to get to trial, the “reasonable home run” is further reduced.
So, getting back to the scenarios above, I want to be clear that because this is a mediation, I do not want to simply go up to the pitcher’s mound, and suggest that the pitcher gives up a home run intentionally. The number needs to be a compromise number. I can represent that, in this case, the “reasonable home run” is $500,000. I just created a bracket of $0 and $500,000. I backed it up by who the players are, the type of case we have, and the facts as well as law. I hope to have made a compelling case that, during the course of the mediation, it would no longer be credible to even suggest a bracket of $400,000 and $800,000, or $500,000 and $1.2 million. I used brackets without ever offering a bracket to the other side.
Multiple Brackets
Just in the same way that plaintiff’s counsel used “multiple” brackets to their advantage, defense counsel can use the same strategy. There is one big difference here. In the above scenario, the defense side settled that case after been put in an awkward situation by the mediator, and walked away with the feeling that they were beaten and taken advantage of by the mediator, the plaintiff’s counsel or both.
However, from the defense side, we want to create the impression that the plaintiff won the battle at mediation. Instead of thinking of a “reasonable home run” as a single number, the thought process going into a mediation is that there is a certain dollar range in which the “reasonable home run” resides in. You would present the “low range” number to the mediator, and it is important that this number be a credible number because you want to maintain credibility with the mediator. The “high range” number is not for general consumption, but you have that in mind in your preparation for the mediation.
Let’s get back to the original scenario posed. But, we will change the evaluation from the defense side. The exposure at trial is $2 million. The settlement range is between $800,000 and $1.2 million. But, because of the defenses raised, a good faith presentation can be made that the “reasonable home run” would be $600,000. You also know that a more conservative “reasonable home run” can be as high as $1.2 million, the high end of the settlement value you have placed on the case.
The initial demand is $2 million, and an offer of $100,000 is made. After a few rounds of back and forth, the parties are far apart. Plaintiff’s demand is $1.75 million, and the last offer is $250,000. The mediator (or any of the parties negotiating) suggests that each party proposes a bracket. Plaintiff’s counsel suggests a bracket of $1.2 million and $1.6 million. The defense side then proposes a bracket of $300,000 and $600,000.
Plaintiff’s counsel may be infuriated. They read the defense bracket as a signal to go up to the midpoint at $450,000, and draw a fair conclusion that the defendant would pay up to $500,000 to settle the case.
Now, where do we go from here? The key is that you came prepared and did an excellent job presenting to the mediator that the “reasonable home run” as being the $600,000 number. If you have successfully convinced the mediator of your position, you can then get a lot of effort from the mediator to work in your corner by confiding that “to get the case settled today,” you would consider going beyond even the $600,000 number that you convinced the mediator would be a likely outcome at trial.
Two things can then happen here. The midpoint between the two high numbers (of $600,000 and $1.2 million is $900,000. The mediator logically maybe considering the $900,000 as a good compromise between the numbers and direct the parties to go that number. The mediator proposes a “mediator’s bracket” of $600,000 and $1.2 million, and the case settles at $900,000.
But, I want the mediator to be considering something else. By having my high number in the first bracket at $600,000, and indicating some “hesitant” willingness to move even above that, the mediator has to guess where I would likely go. Not too high, and not too low. Even though I never mentioned any number, the mediator believes that I would go up to $750,000.
The mediator also has been given sufficient ammunition that the $600,000 number is a very possible outcome at trial, and that the folks on the defense side firmly are entrenched in that belief. The mediator suggests a bracket between $600,000 and $1 million. After a few more rounds, the case settles at $800,000. This is the low point of the original settlement range. The defense side is happy because that is where they wanted to end up. The plaintiff’s side is happy, but less so, because they believe they got $300,000 more than they thought the defense side was prepared to pay.
Conclusion
The reason that many attorneys “hate brackets”, as the beginning of this article suggested, is that they have a misguided belief that if they propose a bracket, it will be embraced by the opposing side, or at the very least, there will be overlapping brackets that the parties can try to find a middle ground. Those attorneys will always be disappointed, and end up with a worst result than if they negotiated in a straight dollar amount negotiation. The key to making brackets work, whether you are representing the plaintiff or the defendant, is first set up a bracket of likely outcomes at trial (ex. $0 to $600,000) in the private caucus, even before a bracket negotiation begins, and then, understand that you will likely need to propose at least two brackets to get the case in a desired range.
